Mobile carrier induced an elderly consumer to make a contract for unnecessary service as a condition for special offer

The following shows a case where an elderly consumer was induced to make a contract for five-line mobile phone service, which was required for big cashback. Guidelines for smartphone contracts are also described.

Details of the inquiry

A few days before, my mother in her 70s visited a mobile phone shop, intending to switch her smartphone carrier. A salesperson said to her, "If you make a contract for two lines, you can get a discount price". Although she declined at first, the salesperson strongly recommended her to do so. The difference was negligible between the price for one line and that for two lines, so she decided to make a contract for two lines. When she was about to sign the contract, the salesperson added, "Now there's a special cashback campaign for customers who have entered into a contract for five lines in total. Regarding four lines other than one line to be switched with MNP (mobile number portability), you just need to make a SIM card only contract. There's a certain mandatory period, but even if you cancel the contract after six months and pay a cancellation charge, your cashback reward will be more than that". My mother declined two or three times, but the salesperson touted persistently. After all, she entered into a contract for five lines. The salesperson told that the cashback reward would be e-money which can be used only via the Internet. My mother told that she didn't use any online store and she would face difficulty if the e-money was not exchangeable with cash at physical stores. Then, the salesperson said, "If you change the e-money into coupons, you can change coupons into cash at physical stores". When she returned home and confirmed the cashback system, she found out that it was not possible to change coupons into cash at any physical store. The salesperson's explanation was wrong. My mother does not need five lines, so she wants to cancel the contract for four lines.

Summarized outcome

After receiving the inquiry, the National Consumer Affairs Center of Japan (hereinafter called "NCAC") listened to the detailed explanation by the inquirer, a daughter of the contract signatory, and confirmed the contract details. Although the shop had told that it was possible to turn e-money into coupons and to turn coupons into cash, it was not possible to convert coupons into cash.

NCAC recommended that the inquirer request the shop on behalf of her mother to cancel the contract for unnecessary four lines without penalty on the grounds that the contract for so many lines was not necessary for the elderly person and that the shop gave a false explanation about the e-money's exchangeability into cash.

When the inquirer requested the shop for cancellation, the shop demanded penalty for cancelling four lines at first. The inquirer repeatedly said, "My mother made the contract because of unfaithful solicitation by the shop, so I want you to scrap the contract". As a result, she managed to cancel the contract for four lines without paying the penalty.

NCAC told the inquirer to inform NCAC right away if she finds any suspicious point or if anything suspicious happens (e.g. if a bill is delivered). Then, NCAC concluded the consultation.

Legal background and issues

Solicitation

Telecommunications services including mobile phone services shall be subject to the Telecommunications Business Act. According to Article 22-2-3-4 of the Ordinance for Enforcement of the Telecommunications Business Act and the Guidelines for Consumer Protection Rules1, telecommunications carriers are required to explain consumers an outline of terms and conditions for their services in a suitable way and degree to enable consumers to understand the outline in light of consumers' knowledge, experience and purpose for making a contract (principle of suitability). Moreover, further solicitation of consumers who have expressed their will not to conclude a contract or unwillingness to be solicited is forbidden under Article 27-2-2 of the Telecommunications Business Act (prohibition of repeated solicitation). In the above case, the consumer in her 70s refused a few times to make a contract for five lines, but the shop induced her to make the contract, which appeared to be unnecessary for her. It's difficult to think that the contract was made based on the consumer's necessity or will.

Cashback

In the above case, the cashback system was used as an incentive for consumers to make a contract. There are many mobile phone shops that provide cashback in traditional money or offer coupons or points to new subscribers to smartphone contracts. Regarding cashback systems with an aim to support customers in buying smartphones, relevant guidelines2 state that it is appropriate for telecommunications carriers to charge a reasonable price for a smartphone in light of the cost, a trade-in price, etc., not to generate significant unfairness between users buying a terminal and those not buying any terminal when telecommunications carriers discount communications services or terminals or provide money or other items equivalent to the terminal in price.

The guidelines apply to package contracts for a terminal and communication service, but not to SIM card only contracts. Nonetheless, the above shop falsely explained about the e-money's exchangeability into cash, which was problematic.

Based on this, NCAC intended to mediate the trouble if necessary. The inquirer negotiated with the shop by herself, and the payment was refunded in full.

There have been some inquiries about contracts for optional or additional communication services in addition to those about intended contracts. For example, there was a case where an elderly consumer wanted to decrease monthly charges even if only slightly and visited a shop after seeing an advertisement. The shop induced the elderly consumer to conclude a contract for tablets and unnecessary options, which resulted in a sharp increase of monthly charges. The contract was made against the consumer's will, so the contract was totally cancelled and the payment was fully refunded. Recently, it is becoming common that usage details are informed via the Internet. For elderly consumers who are unfamiliar with the Internet, it may be difficult to notice actual monthly charges. Before entering into a contract, it is important for consumers to carefully confirm monthly charges and check if there's a penalty for cancellation, regardless of the possibility of cashback.

On the other hand, it is difficult for consumers to understand a complex mechanism of discount campaign and conditions for optional services. Therefore, NCAC would like to request telecommunications carriers and shops thereof to give a clearer explanation on contract details to consumers (e.g. period and way of cashback, end date of free period) as well as follow the Telecommunications Business Act and relevant Guidelines.

1 Guidelines for Consumer Protection Rules in the Telecommunications Business Act, provided by the Ministry of Internal Affairs and Communications (last amended in September 2017).

2 "Chapter II. Guidelines for promoting proper support for purchasing smartphone terminals" in the Guidelines on conditions for providing mobile services and terminals (formulated on January 10, 2017)